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Redundancy Payment and Pay Rates

How do employees qualify for redundancy payments? You must have been in continuous employment for at least 2 years and made redundant for a genuine reason.

REDUNDANCY PAY: There are two different types of redundancy pay:

  1. Statutory Redundancy Pay: This is an amount that the law says you can get.
  2. Contractual Redundancy Pay: Extra money on top of the statutory amount (when stated in your contract).

Both types of redundancy pay get paid by your employer if you have entitlement to it.

Note: The Insolvency Service Redundancy Payments Service RP1 factsheet is for employees made redundant by an insolvent employer.

There are several ‘fair’ reasons employers have for making staff redundant. But, as a rule it is ‘genuine’ if they do not need anyone to do the job any longer. For employees to be eligible for redundancy pay each individual must:

Company management must make the payment when they dismiss their employee. If not immediately it should get paid soon afterwards.

There are specific steps to follow if the company has cash-flow problems. In some cases, making redundancy payments can jeopardize continued business trading.

The Redundancy Payments Service can make arrangements to pay the employee direct. They use revenue from the National Insurance Fund. RPS can also pay the debt if the organisation is insolvent. The money gets recovered from any assets of the business.

Redundancy Payments Helpline
Telephone: 0845 145 0004
Check telephone call charges in the United Kingdom.

Note: A redundant employee has the legal right to a written statement from the company. The letter must set how much redundancy payment staff will receive and how management calculated the amount.

Statutory Redundancy Rates 2022

Several factors determine statutory redundancy pay rates. The factors include the employee’s age and the total length of employment served. Each factor gets counted back from the actual dismissal date.

How much do employees get for redundancy payments? As a rule, basing it on gross pay (earnings before tax) redundant employees will get:

  • Up to 22nd Birthday: Half of one week pay for each year of employment.
  • After 22nd Birthday to 40: One week pay for each year of employment.
  • After 41st Birthday: One and a half week pay for each year of employment.

Employee length of service caps redundancy pay to an upper limit of 20 working years. The weekly pay rate is also capped at £571 as a result of the new redundancy pay increase in April.

The highest award statutory redundancy pay also increased to £17,130. But, employers can give their staff extra redundancy pay if they choose to. They can also use a qualifying period less than the regulatory two (2) years.

Failure to Pay Redundancy

There are several reasons why an employee might make a claim at an employment tribunal. It is an option if the employer fails to make the statutory redundancy rates of pay. It is also an option if the employee disagrees with the payment amount.

But, in either case you must make the claim within 6 months of the date your employment ended.

Tax on Redundancy Payments

Employees made redundant only need to pay tax on redundancy payments over £30,000. They do not need to pay any National Insurance on any amounts.

But, HMRC may deduct tax and National Insurance from other termination payments. An example could be a payment made in lieu of a notice period or a holiday.

Note: Use the government redundancy pay calculator for working out your payments.

Statutory Redundancy Rates and Payment: How Much Can You Get?